Graver: The cost of moralizing coffee

At every Yale dining hall, students can always be found flocking to the jugs of coffee, seeking that necessary boost between a third problem set and the 100 pages of “Das Kapital” due. But only last week did I notice the sign that sits above our caffeine crocks — it reads “Equal Exchange.”

Curiosity led me to do a little research. It only took a quick glance at their website to see that this organization would undoubtedly be the ninth ring of Gordon Gekko’s hell. One quick example: “Because Equal Exchange was founded with democratic principles in mind, we strongly believe in a one-person, one-vote workplace without a corporate hierarchy.” But more important, beyond the Vermont-brand capitalism this group endorses, is the repeated reference to “fair trade.”

Now, by “fair trade,” what they really mean is the opposite of “free trade.” The European Fair Trade Association defines it as “a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers.”

So this seems all well and good, right? Yale chips in a few extra dollars here and there so that we can fulfill our societal obligation — seems like a win-win. Unfortunately, this is an act of self-deception. Our desire to transcend the capitalistic forces that dictate free trade in fact hurt those who we would be trying to help. If Yale seeks to brand itself as a truly conscientious institution, we should immediately cease our relationship with Equal Exchange coffee.

Let’s outline the logical course of events that follow “fair trade’s” noble hopes. Imagine you are a farmer in Vietnam or Kenya, and you are deciding what market to get into. Currently, there is a vast excess of coffee suppliers, so the price level is naturally at a place that would discourage further entrance into the market — however, here is where price distortion comes into play. “Fair trade” introduces an artificially high price into the market, which further feeds the already injurious surfeit of providers.

Moreover, we’ve seen this story before — in fact, “fair trade” in this field stems from the consequences of earlier market tampering. The coffee crisis of the 1990s, characterized by plummeting and unstable prices, was caused by organized ignorance of price forces. Through the International Coffee Agreement, fostered by the United Nations, coffee-producing nations were able to rig prices and subsidize local industry until the bubble eventually burst to the detriment of farmers worldwide.

But isn’t this just more proof of capitalism gone awry? If only the whole world would accept “fair trade” — then these unfortunate results wouldn’t occur! But even if “fair trade” became universal, that would simply raise the price of coffee. A drop in demand would accompany the price increase, thus putting more of the people we are trying to help out of work. Overall, by its nature, “fair trade” coffee creates a harmful set of incentives, luring the world’s poor into an already bloated market — the recurring trap of good intentions.

It’s clear that these conceptual dangers have already become reality. “Fair trade” has created an economic environment that worsens the already abysmal condition of the world’s poorest. Counter-intuitively, in order to just apply for “fair trade” consideration, suppliers need to put up over $1,600 in fees. Furthermore, once contracts are settled, very little ends up actually trickling back to the farmers themselves, with almost 90 percent of the premium going to first world intermediaries. These circumstances drive contracts to relatively developed nations, excluding the countries most in need of foreign business. A 2008 report by the Adam Smith institute sums it up well: “Most of the subsistence economies that people think of as central to fair trade have far, far fewer [fair trade producers] … In practice, then, fair trade pays to support relatively wealthy Mexican coffee farmers at the expense of poorer nations.”

Yale prides itself on being a force for good beyond its ivory tower. However, this goal can only be accomplished with awareness and bravery — an understanding that allows us to break from the lures of self-gratification and begin to make real differences. We readily accept Equal Exchange as a moral good because of our attraction to a sense of selflessness. But Equal Exchange, and “fair trade” coffee as a whole, creates a perverse economic system where the world’s destitute are enticed into a falsely perpetuating market wherein the only option is continued struggle and inevitable failure. There is no question we must empathize with and assist the many destitute people of the third world — but no good exists when we sweep the core problems under a rug of invented altruism.

Undoubtedly Yale will receive criticism for terminating our relationship with Equal Exchange. But President Levin must follow the same advice he gave my class when we first entered this institution — place result over perception.

Comments

I know little about economics, but it sounds like you may have a point so I’m going to do my research on the subject.

However, my stylistic caution to you is to beware of the palpable disdain that creeps into your rhetoric. Phrases like, “Now, by ‘fair trade,’ what they really mean is the opposite of ‘free trade,'” are facile and border on insulting, and the colloquialisms you use give your writing the tone of a diatribe. By doing that, you are going to lose the attention and respect of the audience you most hope to convince. (That being said, you have improved on the pedantic tone your other columns have taken. Good job.)

The Anti-Yale

” . . . palpable disdain that creeps into your rhetoric . . . are facile and border on insulting, and the colloquialisms you use give your writing the tone of a diatribe”

Look who’s talking about pedantic, disdainful, facile prose.

penny_lane

PK, I will just have you know that when I used to write columns in the YDN, you loved them.

RexMottram08

A bit rough in execution but he’s correct: “Fair trade” is not Free Trade and will never help those it intends to assist.

Regulations/trade restrictions HURT the little guys… they are a stick wielded by Big Business to restrict competition… Big Business FEARS a truly free market…

The Anti-Yale

Sorry. Not being an undergraduate INSIDER, I don’t what your journalistic name was back then.

I am only responding to the censorious tone of your posts.

stegosaurusrex

I don’t think farmers in Vietnam and Kenya are “deciding what market to get into.” As for your argument that “Currently, there is a vast excess of coffee suppliers, so the price level is naturally at a place that would discourage further entrance into the market,” I’m sorry, but you’re wrong. The Coffee ‘C’ Future price right now is higher than it’s been in at least a decade (far above that of the fair trade guaranteed minimum price) due to increasing demand and the last two growing seasons being poor due to global climate change.

penny_lane

PK- I have a point though! Rather than responding to his main line of argument, your initial reaction was to Mr. Graver’s quip about Vermont. His disdain, certainly in your case and probably in many others, had the effect of distracting readers from his main point.

My posts are critical (bordering, perhaps, on censorious) because I believe there is value in good writing. Nothing wrong with letting even the tiny population of YDN comment-readers know that someone out there gives a damn.

The Anti-Yale

My reaction to the Vermont distraction doesn’t count since I am notoriously random—and spontaneous. (I’m also decidedly ADHD —-long BEFORE the disease had been invented)

Nothing wrong with your being interested in good writing; but, who died and made you pope? I get the feeling of infallibility and your tone.

PS
What was your journalistic name at YDN?

penny_lane

A daring move to put a semicolon before a coordinating conjunction, my friend! I was always taught to use a comma in those cases. The semicolons are for conjunctive adverbs.

I prefer to maintain my anonymity. I am young–I have a career to worry about and friendships to maintain, and there’s enough embarrassing content about me on the internet already if you look hard enough.

I frequently concede points to those I debate in these forums when good ones are made. Perhaps the reason you read infallibility in my tone is because most of the people who choose to challenge my assertions in this area think I’m wasting my time being pretentious, and therefore don’t take me seriously enough to put up a decent argument. I just hope the authors, at least, put some consideration into what I have to say.

The Anti-Yale

Daring only to nitpicking punctuation pedants. ( My rule of thumb about grammar, punctuation and usage is: Did the fact that “pedal” is both a noun and a verb ever prevent you from riding a bike?)

Anonymity shouldn’t be compromised with “PK, I will just have you know that when I used to write columns in the YDN, you loved them”. Sounds like anyone privy to the YDN scene of the last two years could figure this out , except the outsider, moi.

I read not only infallibility into your tone but “castrating female” (or male, as the case may be).

Best wishes.

The Anti-Yale

BETTER STILL: Did the fact that you DIDN’T KNOW that “pedal” was both a noun and a verb ever keep you from riding a bike?

The Anti-Yale

BTW: English is everyone’s bike. It can be a prim little black English 3-speed with a wicker basket that wobbles along at legal speeds and stops at traffic lights; it can be a rough and tumble dirt bike with cleated tires that does wheelies and cartwheels, that crashes, and splashes and screeches and jerks to a halt. But it is a BIKE, not a bike MANUAL. So for godssake get on it, grab the handlebars and pedal, and ignore all the folks walking along reading their manuals, shouting directions at you. Ride. it’s YOURS, not THEIRS..

penny_lane

PK, you do realize that one of the only things Freud actually got right was the reaction formation…right?

The Anti-Yale

I’m proud to be Exhibit A:

There are no accidents in the life of the mind.

River Tam

+1 to Mr. Graver.

The Anti-Yale

“Penny Lane is in my ears and in my eyes”

The song’s title is derived from the name of a street in the band’s hometown, Liverpool. The area that surrounds its junction with Smithdown Road is also commonly called Penny Lane. Locally the term “Penny Lane” was the name given to Allerton Road and Smithdown Road and its busy shopping area. Penny Lane is named after James Penny, an 18th century slave trader. McCartney and Lennon grew up in the area and they would meet at Penny Lane junction in theMossley Hill area to catch a bus into the centre of the city. The street is an important landmark, sought out by most Beatles fans touring Liverpool. In the past, street signs saying “Penny Lane” were constant targets of tourist theft and had to be continually replaced. Eventually, city officials gave up and simply began painting the street name on the sides of buildings. This practice was stopped in 2007 and more theft-resistant “Penny Lane” street signs have since been installed though some are still stolen.

RodneyNorth

Part 1 of 2 (sorry, but the Daily News has comment/character limit)

As one of the employee-owners of Equal Exchange I want to say we appreciate the vigor of Mr. Graver’s argument and especially that he shares our concerns for the fate and welfare of small farmers around the world.

I’d also like to reassure him that the students, staff and faculty of Yale needn’t worry about the decision to serve our Fair Trade coffee in the dining halls. To the contrary Yale should be proud that your dining services have been one of the leaders amongst university programs to think long and hard about the big picture, and real world ramifications, of where and how it sources its food and beverages. See http://www.yale.edu/sustainablefood/about_faq.html

As for Mr. Graver’s assertions – most of them seem to be borrowed from the Adam Smith Institute that he cited. Over the years this institute periodically attacks the efficacy of Fair Trade but has unfortunately never taken the time to learn how it actually works – as is evidenced by the many mis-characterizations contained in its own publications. Many in the Fair Trade community have tried to give the Institute a proper introduction to the market mechanics of Fair Trade but to no avail. Mr. Graver seems to have both recycled their unfounded criticisms and repeated their mistake of attacking something before comprehending it. Overall the column contains more factual errors than I can address at this time.

But for beginners its revealing that neither the institute nor Mr. Graver acknowledge that sometimes Fair Trade and free trade actually align quite well – as is the case in the heavily protected US cotton, sugar and peanut markets that block out imports to the detriment of small farmers in Africa and Latin America. Fair Trade proponents like ourselves would like to see these markets opened up.

Secondly, Mr. Graver has the history of the International Coffee Agreement exactly backwards. During the years it was in force (ending in 1989) global coffee supply, demand and prices were fairly stable. It was only after the ICA expired that the coffee market became dangerously volatile and began to suffer the booms and busts common to most unregulated commodity markets.

Thirdly, both the institute and Mr. Graver present a gravely over-simplified picture where in Fair Trade is just about price; where farmers base their production decision only on price signals; where there is a signal homogenous coffee market, etc.

(continued)

RodneyNorth

Part 2 of 3

. . . In reality price is only one of five major components of Fair Trade; farmers make their production choices upon dozens of variables of which the price of coffee is but one; the coffee market is heterogeneous with many regional, varietal, quality and process sub-categories; and so on. So a simple equation of “price signals=production decisions” actually obscures the situation more than it illuminates it.

More importantly the institute and Mr. Graver confuse Fair Trade (a set of practices to guide **specific** transactions between **specific** importers and **specific** producer groups in the global South) with government or globally mandated price programs that influence or even set the price for **all** of the crop produced and sold in a country or even the whole world. *(His arguments would be more appropriate for the protected US sugar market.)*

The prices paid by Fair Trade importers like ourselves apply **only** to the crops we import (which with other Fair Trade buyers collectively represent only about 5% of global coffee production). The other 95% of the global coffee crop is still priced according to traditional free market forces. In most years this means that most farmers make a very meager income – maybe $500 – or $1,000 a year if they’re lucky. Because of Fair Trade’s selective and limited impact it is not a “price setter” for the whole market that inadvertently lures farmers into growing the wrong crops. Rather, it is a voluntary choice by a few actors within the market to pay a higher price than they would otherwise. So while we, and other fair traders, are **not** setting a minimum wage for all the world’s coffee what we can do is promise “for the coffee **we** buy we will pay a fair price.” (We actually do much more than just pay better prices – but that’s another story – see [http://www.SmallFarmersBigChange.coop][1] ).

(continued)

RodneyNorth

part 3 of 3

. . And we do so this because we know that in the real world markets actually _don’t work well enough_, and that many of the assumed market elements described in text books do not exist in farming communities. There is great asymmetry between the few well connected and resource rich buyers and the many, usually disconnected, and physically isolated sellers (the farmers). There is asymmetry in access to information, to markets, to credit, insurance, land and labor, and more.

The point is that when we make economic, business, and moral decisions we do it in a specific, real context, not within a striped-down theoretical abstraction. For example, a representative coffee farmer will grow up on a mountainside, on a plot his or family has tended to and invested in for a generation or more. The farm is a day’s walk from the nearest town and maybe a four day drive from the nearest port. This person has a very limited set of economic choices. They cannot simply choose to replace their coffee orchard with a cherry or apple orchard. They cannot follow one season’s price signals and switch to soy beans or strawberries, and then switch back again. With very limited schooling in their community they have very little access to “professional” career options. Unfortunately, some of choices they DO have before them are to possibly grow drugs, or move to the slums in Lima or Nairobi, or migrate illegally to the States or Europe.

The fact is that farmers are usually making prudent decisions in very constrained circumstances. Even at the typically low market prices growing coffee is often the best choice amongst a limited set of options. The same is true for our cacao, tea and banana farmer partners. With Fair Trade we make their hard work at little better compensated, at little less risky, a little more sustainable (both economically and ecologically) and a little more just.